Dow Jones Industrial Average Breaks 12,000

Wall Street got all excited over the Dow Jones Industrial Average finally crossing the 12,000 barrier in intraday trading earlier this week. The index of 30 big-name stocks got to 12, 049.51 before retreating south of 12K on Wednesday. Small investors beware, though, as it took 7.5 years to get there from 11,000. Indeed, the return on the DJIA since Mr. Bush became president has been about 13.5% over the almost six years of his presidency. A 2.5% compound rate of return is nothing about which to get excited.

For reasons of tradition, the DJIA is seen as THE index that Wall Street types follow. The truth is there are better measures of the broader market than the 30 big boys. What one gets with the DJIA are the mega-cap stocks, which tend to lag the overall market. That is, when the DJIA puts in a high, it is more likely to do so after the other indices have done the same. The same day the DJIA topped 12,000 The S&P 500 index was up 0.60, or 0.04%, at 1,364.65, and the Nasdaq composite index fell 8.33, or 0.36%, to 2,336.62. Neither closing was really news.

However, the nice round figure always makes headlines because, owing to poor math fundamentals, people think numbers that end in lots of zeroes matter. Thus, they ignore truly important numbers like pi, phi and the so-called imaginary numbers. When talking stocks, technical analysts worry more about previous support and resistance levels and retracements involving Fibonacci numbers than they do about values divisible by 10.

So the hype is in the media, and more than a few small investors will come into the market, convinced that this is the time. And the truth is for some stocks, it will be. The odds on a retail investor finding them without a lot of help are slim at best. Instead, such a hopeful neophyte is more likely to go long just as tax-selling kicks in and will lose his shirt.

Long-term, equities have outperformed virtually every other investment vehicle. If one believes that 20 years from now, the global economy will be bigger, that there will be more business done by the planet’s growing population, then loading up on equities still makes sense. But if one wants to double the size of one’s account by the end of the year, Wall Street isn’t the place to be. One might try Las Vegas, where failure comes with free drinks.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

Home